Mastercard Wants to Patent a Fractional Reserve Cryptocurrency Bank

Mastercard has gone all the way through the stages of the resistance proverb — “first they ignore you, then they laugh at you, then they fight you, then you win.”

Cryptocurrencies & Mastercard: A Turbulent History

Like most financial companies, Mastercard never expected the blockchain, and by the time they took note of it, they were unprepared for the changes it could and will bring. So their earliest reactions were, to say the least, not positive. A massive firm, however, they were at the same time studying the technology and looking for ways to utilize it, as well as looking for ways to legally make use of cryptocurrencies.

The company has been all over the place on the issue, eventually admitting that it could be “good.”

The Ultimate Irony: Fractional Reserve Blockchain

Now, some years after initially associating cryptocurrencies with crime, Mastercard is seeking a patent for fractional reserve management of blockchain assets. You read that right, and there are likely a number of cryptonaughts laughing their heads off as they digest this. Fractional reserve banking is one of the problems Bitcoin was designed to solve. It is a practice which most who gravitate toward cryptocurrencies would prefer to see eradicated.

In general, Bitcoiners are not fans of debt-based currency. Bitcoin and most other cryptocurrencies are therefore regarded as sound money.

A Step Beyond Not Owning Your Keys: Not Even Being Sure the Institution Has Your Funds

The patent Mastercard is seeking — application 20180308092 — describes a system which will simultaneously track crypto assets and fiat assets. Essentially, it’s a web wallet with a combination of cryptocurrency and fiat accounts.

Bitcoin banking institutions like Coinbase have had trouble gaining traction with cryptocurrency natives over the years for the simple reason that the user/owner of the funds does not then hold the keys. In the cryptonaught’s eyes, not holding the keys to your coin is the same as not holding your coin at all. It can disappear, and there is nothing you can do about it. Thus, the largest component of Coinbase’s customers has been newcomers looking for convenient ways to acquire Bitcoin.

“Thus, there is a need to improve on the storage and processing of transactions that utilize blockchain currencies. Existing payment networks and payment processing systems that utilize fiat currency are specially designed and configured to safely store and protect consumer and merchant information and credentials and to transmit sensitive data between computing systems. In addition, existing payment systems are often configured to perform complex calculations, risk assessments, and fraud algorithm applications extremely fast, as to ensure quick processing of fiat currency transactions. Accordingly, the use of traditional payment networks and payment systems technologies in combination with blockchain currencies may provide consumers and merchants the benefits of the decentralized blockchain while still maintaining security of account information and provide a strong defense against fraud and theft.”

They see a benefit to mixing traditional and cryptocurrency technologies, and the system described would likely include their existing products and payment networks.

“Transactions that may be performed via a payment network may include product or service purchases, credit purchases, debit transactions, fund transfers, account withdrawals, etc. Payment networks may be configured to perform transactions via cash-substitutes, which may include payment cards, letters of credit, checks, transaction accounts, etc.”

Mastercard seeks to do what it does best: process transactions. In the same way, funds can be moved around an exchange or a gambling site instantaneously once their deposits are cleared, Mastercard would like to make this possible for merchants. In this respect, despite the problems associated with fractional reserve anything, Mastercard could potentially make a massive contribution to the Bitcoin economy by enabling millions of existing clients to accept cryptocurrency payments.